Explain revenue variances and spending variances in flexible budget planning?

Expert Solution

Revenue Variance

A revenue variance is the difference between the actual total revenue and what the total revenue should have been, given the actual level of activity for the period.

If the actual cost is greater than what the cost should have been, the variance is labeled as unfavorable. If the actual cost is less than what the cost should have been, the variance is labeled as favorable.

The revenue variance is favorable if the average selling price is greater than expected; it is unfavorable if the average selling price is less than expected. This could be caused by a change in selling price, a different mix of products sold, a change in the amount of discounts given, poor accounting controls, and so on.

Spending Variance

A spending variance is the difference between the actual amount of the cost and how much a cost should have been, given the actual level of activity.

Revenue and Spending Variances

If actual revenue exceeds what the revenue should have been, the variance is labeled favorable. If actual revenue is less than what the revenue should have been, the variance is labeled unfavorable

ekkarill92 answered 2 years ago

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